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From 6 April 2017, a new charge will apply to some employers – the Apprenticeship Levy. Although many employers will not pay the Levy, there will be significant changes to the taxpayer funding of apprenticeships for all employers. The changes are being introduced as the government wants to encourage the creation of three million apprenticeships in England by 2020.

Who will pay the Levy?

In principle, employers will only pay the Levy if their annual ‘pay bill’ is over £3 million. A pay bill means the total earnings upon which Class 1 employer national insurance contributions (NICs) are calculated. The Levy won’t be charged on benefits-in-kind.

The Levy is 0.5% of the pay bill but there is an annual allowance of £15,000.

There will be a requirement to report on the Levy if the employer:

  • had a pay bill of £3 million in the previous tax year; or
  • considers that the pay bill will be over £3 million in the current tax year.

HMRC has confirmed that it is not necessary to report the Apprenticeship Levy if the employer has not had to pay it in the current tax year. Most employers will have no liability to pay the Levy, and there will also be no reporting requirements.

HMRC has also confirmed that employers must include payments to employees for whom there are no employer NICs, including:

  • all employees earning below the NIC lower earnings and secondary thresholds
  • employees under the age of 21
  • apprentices under the age of 25.

The Apprenticeship Levy will need to be reported each month under PAYE Real Time Information (RTI) procedures on the Employer Payment Summary (EPS), which needs to be submitted within 14 days of the end of each tax month. The liability will be due by the 22nd following the tax month (if paying electronically).

How will apprenticeships be funded?

The government has issued the policy for the funding of apprenticeships in England. Employers in other parts of the UK will be paying the Levy but each devolved government will be drawing up their own plans for the use of their share of the Levy.

Any apprenticeships started from 1 May 2017 will be funded under the new policy. This will apply to all employers, including those who do not pay the Levy.

Funding of apprenticeships in England for employers who have paid the Levy

An employer will have a digital account to fund the cost of training apprentices. The level of funding will be the monthly Levy paid to HMRC (multiplied by the proportion of the employer’s pay bill paid to their workforce living in England). There will be a 10% government top up of this amount.

Funding of apprenticeships in England for employers who are not required to pay the Levy

Government funding will meet 90% of the training costs and the employer 10%. The government funding only applies to amounts up to the funding band limit set for a particular type of apprenticeship.

For more information on the Apprenticeship Levy, take a look at our factsheet on the topic. Our two-page guide provides an overview of the new regime, including information on who is liable to pay the levy and how the new system will work.